IMPACT TO THE SMALL BUSINESS DEDUCTION COMING IN 2019
Upcoming rate changes for Corporations will start for yearends after December 31, 2018.� According to Bill C-74, impact the tax on passive income there will be two main changes.
The first change will be the reduction of the Small Business Deduction (SBD). ��For every dollar of Adjusted Aggregate Investment Income (Passive income now known as AAII) the SBD will be reduced by $5.� This will occur when the passive income of a corporation or group exceeds $50,000 in the previous years- if the total AAII reaches $150,000 then the small business deduction will be lost all together.
For corporations in Alberta,� this means that earning investment income over $50,000 will create a marginal tax rate of $130.67%- additionally when the dividends from these companies are flowed to the shareholder they will now be taxed at the integrated rate of 50.26% up from 48.88%
The second change is a little more complex and will change the existing RDTOH (refundable dividend tax on hand) for Canadian Controlled Private Corporations.� It will now be split into two pools which must be tracked.� Basically the dividends will then be reflective of the income source -, if from passive income they will be eligible, vs non-eligible.